Why is there still no IBSA free trade agreement?


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One of the main goals of the IBSA grouping, in existence since 2003, has been the creation of a trilateral free trade agreement to foster South-South Cooperation (SSC).  For example, during the 1st presidential IBSA Summit in 2006,  discussions were largely focused on agreements aimed at stimulating trade between and economic growth in the three countries. At the time, South Africa's President Mbeki expressed his hope that IBSA would soon form a free trade agreement between the three countries:

Beyond the bilateral agreements, we are exploring the prospect of a Trilateral Free Trade Agreement (TFTA). Such an outcome would be without precedent in the global trading system (…). This agreement should be capable of delivering on the developmental challenges we face, challenges of unemployment, poverty and underdevelopment. The agreements we model should provide leadership and creative economic impetus to the global system of trade, which delivers little to the many and too much to the few.

Over the course of the following years, hopes for the creation of a free trade agreement were voiced constantly by policy makers, just as much as the call for UN Security Council reform, another key demand of the IBSA countries.  As policy makers pointed out to underline the potential importance of such an agreement, an integrated market between India, SACU and Mercosur would have a population of over 1.2 billion people, with a GDP of more than US$ 1.2 trillion.

Why then, is there no IBSA free trade agreement?

One reason why progress has been so slow may be that given Brazil’s Mercosur membership and South Africa’s SACU membership, both countries need to articulate and negotiate particular trade agreements as part of their regional blocs.

Some initial steps have been taken over the past decade. A preferential trade agreement (PTA) between India and SACU began after a meeting between the Indian and South African trade ministers in 2000 in New Delhi. A framework agreement was agreed upon four years later, including a small number of tariff concessions. Since then, negotiations towards a complete Preferential Trade Agreement (PTA) have not made any meaningful progress. The existence of the IBSA grouping has had no tangible impact on the discussions.

Mercosur and SACU, on the other hand, finalized a PTA in late 2004, a little more than a year after the creation of IBSA. A revised PTA was adopted four years later, increasing the number of preferences to some degree, yet still covering only a relatively small number of product categories. As of early 2014, the SACU-Mercosur PTA is still awaiting ratification by several member states.

Mercosur and India, meanwhile signed a Framework Agreement in June 2003 to increase economic ties, promoting bilateral trade and creating the conditions for the establishment of a full FTA. At the time, it was agreed that, initially, a more limited preferential agreement (PTA) would be established. This led to the signing of a PTA in New Delhi in January 2004, as a first step towards the creation of a FTA. The India-Mercosur PTA, which came into effect only in June 2009, grants preferential access for a very limited number of product categories and contains provisions on measures such as trade remedies and technical barriers to trade. The agreement grants tariff concessions of between 10 and 100% on 452 Indian product categories for import into Mercosur, and on 450 Mercosur product categories for import into India – hence, it only affects a fraction of overall trade between the two parties.

Regarding the IBSA grouping as a whole, little progress has been made towards an all-encompassing agreement for the past ten years. Several policy makers from the three countries involved assured that talks continue and that it is normal for trade negotiations do take many years.

Yet other negotiators involved privately admit that given the limited scope and complexity of the proposed agreement, it would have been possible to proceed much faster. They mostly focus on cooperation and engagement, and do not involve a comprehensive institutional framework for governing bilateral trade. “What is the point of the IBSA Forum if they cannot accelerate the trade negotiations?” a former policy maker asked, pointing out that regular meetings of representatives of SACU, Mercosur and India have been organized by the IBSA Forum. For example, it is quite remarkable that despite frequent praise for South-South cooperation, the majority of South Africa’s trade agreements are with developed countries. In addition, some analysts have pointed out that despite having similar roles, which are derived from their status as middle powers, the IBSA countries have developed different strategies concerning their trade policy.

In the same way, Sean Woolfrey writes

The fact that the entry into force of these PTAs has taken so long suggests a lack of political will – something that perhaps could and should have been addressed under the IBSA Forum – and does not augur well for attempts to establish a far more ambitious India-Mercosur-SACU FTA. It must surely be seen as a disappointment that, more than eight years after being put on the IBSA agenda, the goal of an India-Mercosur-SACU FTA is not significantly closer to being realised. (…) The minimal scope of these FTAs and the significant time it has taken for their conclusion suggest the influence of protectionist interests and a lack of political will to push for more substantial progress.

In any case, it is uncertain whether a trade agreement would have any discernible impact, given that the major barriers to trade between Brazil, South Africa and India are not necessarily high tariffs, but poor transport connections and a lack of trade complementarity between the three countries. Flemes writes that “India, Brazil and South Africa are not natural trading partners and the limits to commercial exchanges between them should be recognized.” Arguing that a trade agreement will be difficult to achieve, he points out that “a more realistic approach could be directed towards trade facilitation and the improvement of transport and infrastructure links between the three players.” White argued that better connectivity, removal of double taxation, homogenous business practices and visa exemption are more urgent and likely to be more far-reaching than an IBSA-wide FTA.

This leads us to another, similarly intriguing question. Did policy makers who repeatedly called for the creation of an FTA between the three countries really think it would be feasible? If so, how is it possible that they miscalculated so egregiously? Or did they merely mention the issue as a motivational battle cry? All we can say is that their announcements in the numerous IBSA declarations over the years raised many false hopes among analysts and businessmen, many of whom today no longer take IBSA-related promises seriously. Only concerted action, not more rhetoric, would convince them to change their minds.

Read also:

South-South Cooperation: Do the IBSA working groups make a difference?

South-South cooperation: Does the IBSA Fund matter?

The IBSA Forum – A Decade On: Mismatched Partners or the Rise of the South?

Keep BRICS and IBSA Separate

Photo credit: GovernmentZA Flickr account (South African Government)